When you step into a Starbucks, if you've ever been to a Starbucks before, you have expectations: your favorite coffee drink will be on the menu and customizable to your exact specifications; your barista will be wearing a green apron; and your cup will be coddled by the same cardboard sleeve that prevents your hands from scalding as you walk back to your office. Congratulations, you've just interacted with a fast-food chain — and a handful of smaller businesses.
We tend to see fast-food chains as monoliths, but there’s a whole network of independently owned businesses standing behind them.
We tend to see fast-food chains as monoliths, lumbering across the landscape of mass consumerism. But there's a whole network of independently owned businesses standing behind them. Their successful initiatives help improve the chain's bottom line, whether they're designing more sustainable products or saving tons of money by troubleshooting distribution problems before they even occur. In turn, these smaller boats rise with the tide.
It can also work in the reverse. A few months ago, just after Christmas, Huhtamaki — the Maine-based manufacturing plant that produces paper bowls for Chipotle — announced that it had to lay off 25 to 30 employees. A few weeks later, another 30 workers lost their jobs. As the Bangor Daily News explained, the layoffs were a direct result of the hit Chipotle has taken in sales after the rash of foodborne illnesses that have broken out across the chain. Huhtamaki says the layoffs are temporary, though, confident that Chipotle will regain its standing.
All of this points to the interconnectedness between giant fast-food chains and the smaller American businesses that rely on those chains to boom — or at least not to go bust. But who are these small businesses? Eater took a look at three fast-food suppliers — in the realms of packaging, technology, and uniforms — to learn how they work with chains like Starbucks, Popeyes, and McDonald's. How do you build a business that can both support and improve the performance of a fast-food chain while weathering any potential crises it might bring?
Double cupping has always been a problem for Starbucks. In the mid-'90s, Starbucks employees regularly doubled up its paper coffee cups to protect customers' hands — and caught flak for doubling the amount of damage they were doing to the environment. Matt Cook, who is now the CEO but had just taken over as president for LBP Manufacturing in Illinois at the time, saw a solution: cardboard sleeves.
For its first 100 years in business, LBP Manufacturing was known as Levin Brothers Paper, and it distributed barrels and crates to companies like Marshall Field's department stores. When Cook joined the company in 1993, he says he saw an opportunity to convert the business into one that created food packaging materials out of those corrugated boxes. LBP started selling takeout boxes to caterers. But in 1996, Cook called up Starbucks and changed the direction of the company.
Starbucks had a few concerns before it took LBP on as its cup sleeve manufacturer. Mostly, they wanted to know if LBP could grow alongside the chain, which had only 600 locations at the time, Cook says. He adds, "we had a lot to do to reassure them we were going where they were going."
LBP now produces several billion sleeves a year for all of its clients, as well as a variety of other products like sandwich boxes. McDonald's, Dunkin' Donuts, Tim Hortons, 7-Eleven, Wawa, and Sheetz all use LBP products. The company is still headquartered in Illinois, with a couple of manufacturing plants outside Chicago, including a 6,000-square-foot test kitchen where it works with chains as they're developing menu items to figure out the most effective packaging solutions. It also now has plants in China and Poland that can support Starbucks' expanding markets.
LBP started making sleeves for Starbucks when the coffee chain had just 600 locations.
While the key to being a successful fast-food chain supplier seems to be an ability to push forward, that doesn't just mean growing alongside the chain. For LBP, it has meant creating more sustainable products, even before sustainability became an increasingly important buzzword in business.
Sustainability was already part of LBP's ethos when Starbucks approached Cook in 2010 with a challenge to reinvent its coffee sleeves. Starbucks wanted the dream: a cheaper sleeve, with comparable performance, that was more environmentally sustainable. As a manufacturer that was already taking corrugated boxes and turning them into something reusable, it was an easy decision. "We were sustainable when it was economic, not sexy," Cook says. In 2012, Starbucks and LBP introduced the EarthSleeve, which is made of 33 percent less paper than the previous sleeve. Starbucks announced last summer that it had finished rolling the new sleeves out to all of its stores.
TECHNOLOGY AND LOGISTICS
When it launched in Chicago 15 years ago, ArrowStream immediately had its eye on helping massive fast-food chains manage the massive streams of data hitting their supply chains. After all, Popeyes's fried chicken needs to taste the same, and be consistently available, at every store across the country. To do that requires paying attention to a gamut of data such as prices for every single ingredient, contract amounts, distributor inventory, and more. "It's actually incredible that chains can do it," says Jeff Dorr, chief customer officer for ArrowStream.
ArrowStream offers a couple of different tech solutions to chains looking to cull that data and make sense of it. The longest-running of these is the OnDemand software, which connects directly with a chain's distributor. From the portal, a client can check on the distributor's inventory, discover whether a mudslide in California or transportation strike will affect delivery, or look into the price variances at the distributor's regional operating companies. "Our technology is fostering a better communication between these businesses," says chief solutions officer Bill Michalski.
"As a technology vendor, you never want to have all your eggs in one basket."
In addition, ArrowStream offers a service called Crossbow that keeps track of how clients order inventory and then how that inventory is shipped. For example, distribution centers receive huge packs of inventory from manufacturers, which they then pull apart to send to different stores. Crossbow is supposed to help a chain monitor the flow of all of those packs to see if they might be shipped more efficiently — such as into three separate trucks instead of four.
Among ArrowStream's first clients were Popeyes, Church's Chicken, and Cinnabon, which at the time were part of the same company (AFC Enterprises) and therefore shared a supply chain manager, Supply Management Services, Inc. Michalski says they embedded employees with the supply chain manager for several years when getting started, just to learn their data needs and create a portal that best responded. From there, ArrowStream steadily continued to cut its teeth on other big chains and their equally massive supply chains, including Panda Express and Einstein Bros. Bagels in 2009 and Corner Bakery Cafe in 2013.
For ArrowStream, pushing clients forward has meant adapting technology on even more sophisticated, smaller levels. "The relationship is really symbiotic," Dorr says. "We're not selling a widget. We're selling an engagement wrapped around technology." ArrowStream isn't giving away Popeyes' proprietary spices, he jokes, but it does apply lessons it learns from one client to the others. As Michalski says, "We're all tasked with making each other better."
In the late 1980s, while working as an accountant for McDonald's, Alan McIntosh knew he wanted to do something else: He wanted to be an entrepreneur. And he knew he could fill a need for the very same burger chain that had already employed him: uniforms and branded merchandise. By the early ‘90s, McIntosh and his business partner Wayne Beasley started Way To Be, selling promotional T-shirts for the McDonald's Gospelfest in San Francisco. McDonald's splits its suppliers up regionally, and Way To Be persuaded local franchisees to take them on as a clothing vendor.
Eventually, franchisees outside of the Bay area noticed Way To Be's work and wanted to take them on, as well. So the company became a nationally licensed vendor. Now Way To Be pitches McDonald's on uniform designs, and fills other uniform and promotional product needs like, say, a baseball cap advertising the chain's All-Day Breakfast.
McDonald's is Way To Be's only fast-food client; thanks to its location near Silicon Valley, most of its clientele comes from the tech world. (It also provided uniforms for the volunteers at this year's Super Bowl 50.) And while Starbucks approached LBP about creating more sustainable sleeves, McIntosh says vendors also have opportunities to push the chains toward sustainability. He and Beasley approached McDonald's when they noticed that the chain's vinyl banners, which advertise new specials and promotions, were going to waste when taken down. The duo worked with franchisees and food distributors to collect the banners and created messenger and grocery bags out of the material. "We've found most of the ideas we've shared with them have been adopted, especially when it comes to sustainability," McIntosh says.
HOW THEY PROTECT THEMSELVES
While it's fairly obvious how vendors and fast-food chains can drive one another's successes — having a big client is great for a small business, which can provide a service to improve the chain's bottom line, which in turn helps the vendor once again — what's more complicated is how small businesses protect themselves from becoming overly reliant on one big brand-name client.
The most basic protection, of course, is keeping a diverse clientele. "As a technology vendor, you never want to have all your eggs in one basket," says ArrowStream's Michalski. "We don't put ourselves in that kind of risk." But, Michalski adds, ArrowStream is less worried about its clients' stumbles than it is about losing clients by failing to evolve with their needs. "The real risk is in maintaining the value we're providing their customers over the years," he says. That's why the company is now turning its focus to smaller chains with less extensive supply chains to organize. With these smaller chains, there's opportunity to explore the granular details of the data ArrowStream's software digs up.
Meanwhile, Cook of LBP says he's not particularly worried about finding the same fate as Chipotle's paper bowl vendor, now that most of the manufacturer's growth is coming from "up-and-coming" multi-million-dollar brands. And those brands, he says, are courting the next generation of clientele: millennials. When it comes to any of those businesses faltering, he says, "I have a very low level of concern."
For Way To Be, protecting themselves starts when choosing a partner and a project. McIntosh says the problems start when companies get too hung up on dollar amounts and accept a project that they can't deliver. "We don't bite off more than we can chew," he says. "We make sure each opportunity is something we can be successful at and do it on a world-class basis. So you can't accept every opportunity."
"We don’t bite off more than we can chew. You can’t accept every opportunity."
When asked if so closely aligning itself with McDonald's impacts Way To Be when the chain is maligned for its labor practices (such as during the Fight For $15 protests), McIntosh simply says, "that doesn't affect us." But, he says, as an African American-owned small business, it's important for Way to Be that its clients are inclusive — which he says is not a problem with McDonald's.
While all these companies provide the moving parts for behemoth fast-food chains, they're also all their own entities with their own goals. At Way To Be, they're working on developing a sustainable polyester, with a patent pending. Having started off with the big companies, ArrowStream is turning its focus to see how its technology can be applied to smaller chains and even beyond the food service industry. And while LBP continues to build its global footprint in support of Starbucks' expansion, it's poised to expand even further with its recent acquisition by the Pritzker investment firm.
"So many people are so focused on the end product, right?" says Dorr of ArrowStream. "When you actually realize what goes behind delivering that $4.99 chicken basket, it's staggering."